Archives for Dr. Sylvain Charlebois

“Dr. Oetker in Grand Falls and Campbell’s in Toronto: two closures, almost 600 jobs. The bloodbath in food manufacturing in Canada continues. But despite appearances, the future in food processing has never looked brighter.”

Dr. Sylvain Charlebois

Dr. Sylvain CharleboisDean, Faculty of Management

The bloodbath in foreign-owned, large-scale food manufacturing in Canada continues. In the past few days, we’ve learned that two plants, employing almost 600 highly-paid workers, are closing: Dr. Oetker in Grand Falls, and Campbell’s in Toronto. Estimates suggest that Canada has lost over 30,000 similar positions in food manufacturing in a decade. This is not new.

Both cases have common denominators: both plants were ancient, outdated, and in dire need of a retrofit. However, the companies opted instead to consolidate assets and have products manufactured at more modern facilities. In other words, they never intended to reinvest to modernize the existing plants. The use of better automation and robotics could have helped, but instead the facilities were left to rot and die a natural death. Announcements were made as news came and went. Ontario and other provinces have countless aging plants, owned by foreign companies, and in need of a significant influx of capital to remain in compliance with modern-day standards of food safety and product advancement. So do not be surprised to see more of these types of closures as we are now paying for years of foreign control in this sector. Brands are now worth more than the human capital working in their facilities across the country. It’s not personal, it’s just business.

National brands, often seen as symbols of out-of-touch food corporations, are becoming an endangered species. Every week now, national brands, historically more expensive than private label food products, are marked down. Price points are much cheaper due to more attractive prices on store-owned labels. As well, many consumers, starting with Millenials, are moving away from major brands. More and more people are looking for organic, multicultural foods — hardly concepts mega-enterprises have been associated with, at least until recently. The pace of this demographic shift is spectacular. We are seeing more consolidation in food processing around the world because consumers in the Western world are looking for something different, natural, and local. Many of the brands we all know do not resonate with people looking for these so-called value-based brands.

This pressure is leading to seismic shifts in the sector. Overseas, we learned recently that Keurig Green Mountain, the maker of coffee pod machines, is planning to purchase the Dr Pepper Snapple Group in a massive $18.7 billion transaction. The portfolio of the new company will include products varying from coffee to soft drinks. This deal is really about competitiveness at retail and allowing major brands to remain competitive. Brand equity, which has ruled grocery aisles for decades, is slowly becoming an afterthought. Margins must be better managed and merchandising strategies will need to be reinvented. Consequently, becoming bigger and more resourceful is key.

Most Canadians do not appreciate that the food processing sector is the second largest manufacturing industry in Canada, in terms of value of production, with shipments worth $112.4 billion last year and employing over 250,000 people. This represents 2% of our overall economy. It is a massive sector which has flown under the proverbial radar for decades. This is why “Food & Beverage Canada” was just created by the sector, so processors can have a voice. Without a vibrant manufacturing sector, Canada’s agri-food sector cannot prosper.

Growing commodities is helpful for rural economies and small to medium-sized businesses. As Canadians, it is what we know best. But given how our world is changing, this is no longer enough. Food manufacturing has a multiplier effect on growth. which cannot be emphasized enough. For years, we have been reliant on foreign brands to offer job opportunities in small communities.

Most of these brands, however, are American. The Canadian brand has never been fully exploited in the food value-added sector, a missed opportunity indeed. The needle is slowly moving in our country, recognizing that food processing needs to find its mojo. The Agri-Food Innovation Centre at the University of Saskatchewan opened this year, to support the sector’s will to diversify and launch new businesses. Many incubator and accelerator programs in Toronto, Montreal, Halifax and elsewhere have been launched to create ag-tech companies, which focus on providing more value-added products to the market, both domestically and abroad. Quebec now has a new market access program to support companies looking for new markets. It is no longer just about spreading money to different sectors across the agri-food continuum. Scalability and generating significant economic activity throughout the country are becoming priorities for most stakeholders in both government and industry.

Becoming a world-class agri-food giant involves building an ample food processing sector. We also need to provide the sector with ways to mitigate against higher wages, restrictive trade rules and fluctuating currencies. Looks like someone is finally getting the message.

Dr. Sylvain Charlebois, Dean of the Faculty of Management and a professor in food distribution and policy at Dalhousie University and Dr. Tony Walker, an assistant professor at the School for Resource and Environmental Studies Dalhousie University suggests that replacing plastics will require a consumer revolution.

Are we willing to change?

Martinique Beach

Are we ready to give up the single-use plastic bags, cutlery, straws, plastic drink bottles, coffee cups? Plastic is ubiquitous, quick, efficient and easily thrown away – out of sight. There is a 5-cent charge in some stores for plastic grocery bags that may seem to be a reasonable and a fair price to pay for convenience. But is it fair and reasonable for our environment?

Increasing public awareness has made us look for alternatives to plastic.

We are rethinking our reliance on plastic and considering that our individual decisions do make a difference in the effort to safeguard our environment. Going forward, the trend to choose 100% cotton grocery bags and reusable water bottles and coffee cups appears to be flourishing. Convenience is not as important as championing sustainable living.

The Faculty of Management, Dalhousie University is at the forefront of research in resource and environmental studies.

Dr. Sylvain Charlebois and Dr. Tony Walker:

An increasing number of people are voicing concerns about the use of plastics in our daily lives. Single-use plastics of any kind, such as grocery bags, cutlery, straws, polystyrene and coffee cups, are significant yet preventable sources of plastic land-based and marine pollution. In Canada, bans on plastics have so far been left up to municipalities, some of which are taking action. Both Montreal and Victoria have recently decided to ban plastic bags in stores, with business owners subject to huge fines if caught providing these to customers. Other jurisdictions, such as the city of Halifax and the province of Nova Scotia, are contemplating similar bans, in the wake of China’s recent ban on the import of certain recyclable products. Although regulations are cropping up in only certain places, increasing public awareness appears to be gaining widespread momentum globally and across Canada. Read the full story on The Globe & Mail: Replacing Plastics Will Require a Consumer Revolution

“Health Canada’s front-of-packaging proposal is clearly a step in the right direction. It empowers consumers to make better, more informed choices without overprotecting them. But there is one thing missing,…”Dr. Sylvain Charlebois

Dr. Sylvain CharleboisDean, Faculty of Management

When it comes to food, the current government is big on consultations. Health Canada has recently launched online public consultations and will be conducting consumer-oriented research to assess which formula works best for front-of-package labelling. Four models have been presented as Health Canada appears to want to keep its options open. From the looks of it, however, all of the logos look the same. Regardless, saturated fats, sugar and sodium are targeted and are intended to be predominantly placed on the labels on all packaged goods sold in Canada.

The new suggested label policy appears to be straightforward. All food products that include more than 15% of the daily recommended consumption of each ingredient will be labelled at the top of the package. Raw commodities with natural ingredients, such as maple syrup or meat products, will be exempt, which makes perfect sense.

Front-of-package nutrition symbols and notices are presumably noticeable and require minimal prior nutrition knowledge to use. The label needs to be clear and simple, which is exactly what Health Canada is proposing. But simplicity does not necessarily guarantee a confusion-free experience.

Although individuals pay attention to sugar, fat, and sodium, they may rely on these nutrients to the exclusion of others. One can argue that the more time individuals spend eating sugar, fat, and sodium, the lower their grasp in determining which product is healthy. The policy, as presented by Health Canada, appears to over-value certain nutrients. This may lead consumers away from buying certain nutrients and encourage the purchase of others. For example, certain packaged cheeses which may be high in fat but are rich in other important nutrients such as vitamins C, D and calcium. One good step is that calories are not emphasized. Studies suggest that calories are over-used and can interfere with selecting a healthier product.

Beyond the proposed front-of-packaging labels, one issue that should be underscored is the accuracy of the nutritional labels. Many studies have shown that sodium and fats are often underreported. This should be monitored more often to make sure that labels are accurate. This could also reduce chances of seeing fraudulent food products and cases of adulteration.

Simplicity has its challenges and unfortunate limitations, and industry has expressed concerns and even some level of opposition. A likely beneficial outcome would be to see food manufacturers return to their drawing boards to reformulate some of the food products that they have been marketing for decades. Some could choose to discontinue entire product lines. It will be interesting to see how industry adapts.

Given the pressures of everyday life, Health Canada’s plan is likely the most effective way to let consumers know what to look for. In order for the new labelling rules to be effective, the labels should go a little further. The new labelling policy should have colour and words that indicate levels. Studies show that the traffic light system is the best example for such a design. According to a few studies around the world, consumers exposed to the green-yellow-red scheme of colours are three times more likely to identify the healthier food products than consumers using other systems. Over time, consumers understand that the health value of food products can be assessed in relative terms. Right now, Health Canada’s approach is dangerously binary and does not allow for some interpretation and enhanced nutritional literacy.

Some are also suggesting that the new plan does not go far enough. Several groups and experts claim that cartoons and colourful packaging ought to be banned. It is known that products that seek to engage children with their packaging are significantly less nourishing than foods that do not. However, with clear and unassuming front-of-package labels, the information would provide parents with the necessary tools to properly make decisions for themselves and their children. There is a delicate balance between giving the proper information to consumers and overprotecting society in general. Overprotection rarely entices consumers to become better educated about important issues such as proper nutrition. New policies should encourage consumers to make healthier choices, and not necessarily protecting them from themselves.

Overall, short of a traffic light-esque approach, Health Canada appears to be striking the right balance between labelling simplicity and effectiveness. There also appears to be some momentum towards more of these new labelling policies around the world, so Canada is not a lone wolf. Several countries, including Australia, are looking at making changes simultaneously. Importers will not see this new approach as an obstacle, or at least, it should not become a deterrent which could potentially limit trades. For our own food security and economic welfare, this is something we need to keep in mind as we try to empower consumers with more information about the food they eat.

“Eating out is costing more, as are tomatoes for some strange reason. Here’s the good news. Bread is cheaper. But one thing is clear though: 2018 is turning into a very challenging year for the food industry.”Dr. Sylvain Charlebois

Dr. Sylvain CharleboisDean, Faculty of Management

Recent StatCan numbers indicate that grocers are in trouble. Food inflation is now above 2% for the first time since April 2016. This is typically good news for grocers as it gives more room for them to increase margins. But given major headwinds affecting the industry, grocers will need to get even more creative to reassure investors.

Loblaw has reason to be particularly worried, having posted underwhelming 4Q results last week. Food retail sales dropped by 1.2% and total revenues slipped by 0.9%. Despite strong Shoppers Drug Mart sales, company executives indicated that reforms affecting the price of generic drugs will impact profits. But it is higher wages that seem to be the big worry for the company, as provincial governments are exploring options, figuring out how an economy with a $15/hour minimum wage would work. In fact, StatCan numbers may be suggesting where things are headed with minimum wage increases.

It may too early to tell, but Ontario minimum wage hikes likely pushed menu prices higher in January, especially in fast food, where most of the income earners are paid minimum wage. And this likely just the beginning. After a 22% hike on January 1st of this year, Ontario’s minimum wage is due to increase again to $15/hour on January 1, 2019. Alberta will join the $15/hour club in October of this year, and British Columbia intends to pass the $15 mark in 2021. Other provinces like Quebec and Nova Scotia are thinking about following suit. The $15 campaign will not go away any time soon. Obviously, most people don’t object to the concept that people should earn a decent living. The challenge with Ontario, though, is how quickly wage hikes are being implemented. A 32% increase in 12 months is simply irresponsible. Restaurants, and many of them are family-owned businesses in regions across the province, will have a hard time coping.

The grocery business is also being affected by higher minimum wages, but indicators are subtler. Here’s one example. The price of tomatoes, one of the most popular produce items, jumped by more than 30% in one month. It’s hard to tell, but this was likely an effect of minimum wage increases, as it is unusual to see any fruit or vegetable price increase by even 4% in one single winter month. Even imports have a critical impact as the value of the Canadian dollar remained relatively stable against the U.S. greenback. Margins are typically much higher in this section of the store.

2018 is turning into a very challenging year for grocers, especially Loblaw. Results we saw last week from Loblaw are indicative of what is to come. For the Brampton-based giant, it is a godsend to see food inflation rise again, so that it can tweak certain price points, and increase margins without most people noticing. Loblaw will need to get creative — very creative — in order to continue to deliver over the next few quarters. Results indicate that store traffic is an ongoing issue, so converting store sales to online activity will be critical, especially with what is on the horizon.

Meanwhile, in the U.S., Amazon is continuing to create havoc in the grocery landscape. Bloomberg just reported that two grocers, Winn-Dixie parent Bi-Lo and Tops Friendly Market, could declare bankruptcy this month. This is likely due to the ominous shakedown in the grocery industry caused by Amazon and its newly acquired Whole Foods subsidiary. This is only the beginning, and Amazon is slowly capturing more market share in groceries, destroying historically well-established players one by one, as it did in other sectors like bookstores. Loblaw is realistically concerned that Amazon will make its way into Canada — a further threat to this major grocer.

But there is still hope. Higher menu prices may slow down the food service sector’s string of successes in recent years. As food and labour are a restaurant’s highest expenses, this may be an opportunity for a grocer like Loblaw to commit more seriously to both ready-to-eat and ready-to-cook spaces. Increasing food retail sales will become more and more difficult. While menu prices go up, exploiting the nexus between food service and retailing may give Loblaw an advantage. This could be Loblaw’s next move, but they clearly need to think differently about how to grow the business.

Interestingly though, while posting its 4Q results, Loblaw made no mention of it $25 gift certificate campaign, launched because of its self-confessed involvement in the bread price-fixing scheme in December. Nonetheless, StatCan numbers confirmed what many suspected. Bread prices are dropping across the country. BMO stated earlier this year that bread prices were down 2.5% since December, after Loblaw made the disclosure. According to StatCan, bread prices dropped 1.7% in January alone. In fact, it seems most bakery products are cheaper than they were a month ago. This may be a sign that grocers are trying to make amends with the public, since the story has garnered so much attention. It is unclear whether the aggressive discounting we have seen in many stores will continue — only time will tell.

“It appears Canadians are starting to realize who’s behind the heartless stance against Tim Horton’s employees here in Canada. But RBI’s future plans may have nothing to do with Canada, and even less so with low-wage Canadian employees.”

Dr. Sylvain Charlebois

Dr. Sylvain CharleboisDean, Faculty of Management

Destroying Canadian icons seems to be a trend these days. In 2017, it was Sears. While employees were losing their pensions because of poor management, lawyers and consultants were receiving millions. Now, as minimum wage policies are slowly shifting across the nation, and not just in Ontario, Alberta and B.C., Tim Horton’s, or perhaps Restaurant Brands International (RBI), is displaying what many would consider unwise resistance.

Several Canadian retail icons have crumbled, due to weak managerial strategies. This was the case with Eaton’s and most recently, Sears. Most closures, though, have historically been self-inflicted. With Tim Horton’s and RBI, the act seems almost deliberate, even tactical, and implicitly calculated. Most executives and members of the board at RBI have unquestionable business and financial acumen. RBI’s shares have almost doubled in value since its inception in 2014 when Burger King merged with Tim Horton’s and landed its Head Office in Oakville, where Tim Horton’s used to be.

But RBI’s share price is starting to weaken. After hitting a record high price of about $84 in October 2017, it is now down to approximately $77. It appears that markets may be starting to connect franchise-based challenges with the parent company, which also owns Burger King.

RBI is all about cost management, and has served several food outlets so far beyond reproach. But Burger King and Tim Horton’s are two very different franchising worlds. A typical Tim Horton’s franchise owner has about 3 stores on average. Most are regionally located, family-owned operations looking to support communities and create jobs for the next generation. With the Burger King division, on the other hand, RBI deals with franchise owners who typically own about 150 restaurants, sometimes even more. RBI’s role with Burger King is inherently different. Burger King franchise owners are massive companies, dealing with an outer-agent in RBI, and act more like an association of buyers. In addition, Burger King is no iconic brand but more of a me-too project which came out of the McDonald’s expansion years ago. Similar observations can be made about Popeye’s, another fast food chain recently purchased by RBI.

RBI is run by competent leadership who know a thing or two about how to operate franchises in the food industry. But its style, fueled by the ever increasing number-focused obsession of Brazilian group 3G Capital, does not offer the stewardship the iconic Canadian brand needs.

On the other hand, RBI’s aims may be deliberate. RBI’s intends to expand beyond Canada, and make Tim Horton’s a global brand, something Tim Horton’s has failed to do over the last few decades. So far, results in the U.K. are promising but more investments will be required. RBI is essentially using its established iconic status in Canada to support its international ambitions. In the process though, lies several victims, including franchise owners, and most important, low-wage employees being asked to pay for uniforms and limit paid breaks. When numbers matter too much, as it is the case for RBI, human capital is treated, heartlessly, as unimportant. And now, an increasing number of Canadians are noticing.

But there is more to this. Relocating RBI’s Head Office is a strong possibility. The company has never shied away from the idea, giving itself five years to do so, after its expansion in 2014. With the U.S.’s new tax reform, the fiscal climate is more attractive for a potential move south of the border. Burger King’s move north was considered a corporate tax inversion ploy in 2014. With a new tax regime in the U.S., we should not be shocked to see Tim Horton’s become a true American-owned brand. Canada will matter less and less, as the company expands internationally.

Nonetheless, the brand is suffering and will continue to suffer for a while, to the dismay of many Canadians. Many of us gather at Tim’s for regular chats, to celebrate birthdays — there have even been a few weddings at Tim Horton’s. None of this seem to matter to RBI. Regrettably, Tim Horton’s faith, the brand that is, could end up looking like the life of the legendary hockey player, Tim Horton, himself. They both started as Canadian, moved to the U.S. for a while before, well, we all know the rest of the melancholic story.

Canada can’t win a trade war with the United States

A welder fabricates a steel structure at an iron works facility in Ottawa on March 5, 2018. U.S.President Donald Trump’s stated intention to impose new tariffs on steel and aluminum imports could start a trade war.THE CANADIAN PRESS/Sean Kilpatrick

Bill Morneau is perhaps an influential figure in Canadian Prime Minister Justin Trudeau’s cabinet, but he’s not conducting himself like most finance ministers. Given the budget he presented recently, he may be more of a social justice warrior.

Supporting more diversity, equality and inclusiveness is obviously critical to the betterment of our society, but I believe most Canadians expect more from a finance minister. His recent budget was sorely lacking.

There were no plans to balance the books and, most importantly, there were no mitigating strategies presented in relation to a floundering global trade environment.

Few details were given on the government’s plan to deal with NAFTA’s possible demise on Washington’s “America First” policy, and there were no attempts to circumvent trading challenges.

The ugly face of protectionism is slowly making its way across the globe. U.S. President Donald Trump announced last week he’s considering new trade restrictions, including a 25 per cent tariff on imported steel and a 10 per cent duty on aluminum, though the White House has suggested Canada and Mexico may be exempt from the measures.

Nonetheless, trade wars are something Trump appears to relish.

Despite recent trade deals signed by Canada, the world seems at odds with open trade, and instead everyone wants to protect their own domestic markets.

This is a seemingly dangerous path given that agriculture and food are often considered the most vulnerable and sensitive sectors when it comes to trade barriers.

Most economists see freer trade among nations as an absolute good until politics come along. But not all trade is created equal. Some win while others lose, and given the economics of our country, Canada cannot win many trade wars, especially not with the United States.

Expensive way to retain jobs

Trade barriers, which are often scientifically unjustifiable but politically motivated, make economies weaker and less competitive over time. Duties may look like an attractive, simple mechanism to protect domestic interests, but they are an extremely expensive way to retain jobs in an economy.

But Canada doesn’t exactly have an immaculate record either on trade barriers.

Canada itself applies heavy duties on many imports, including dairy products, poultry and eggs. These duties are embedded into our supply management regime, considered by many as one of the most protectionist policies in the world.

Most countries do enact duties on a variety of food products, but Canada goes even further by enabling and controlling domestic production with quotas. We are the only western economy still doing it. That makes it extremely awkward to ask trading partners for exemptions to their own trade barriers.

A dairy farmer holds onto a cow as he takes part in a protest in front of Parliament Hill in Ottawa in September 2015 to demand the protection of Canada’s supply management system in the Trans Pacific Partnership negotiations.THE CANADIAN PRESS/Sean Kilpatrick

What remains under-appreciated is how intertwined all economies are, not just those of the U.S. and Canada. Duties in one sector will affect the ability of other sectors to trade. It is difficult, if not impossible, to link steel and aluminum with dairy, poultry and/or eggs, but the connection exists.

Morneau essentially short-changed Canadian taxpayers last week with his so-called budget. I believe the government’s focus on equality would have been better served at another time.

We should not be shocked to see Ottawa utterly unprepared for Washington’s wrath towards its trading partners. Upholding equity values for our country is undoubtedly noble, but the government could fall short on its social promises if it runs out of cash.

“The Trudeau Government did the right thing by signing the CPTPP, especially for agrifood. Now its time to be honest with our farmers. Our supply managed sectors deserve leadership and a new vision.”

Dr. Sylvain Charlebois

Dr. Sylvain CharleboisDean, Faculty of Management

Even as the North American free-trade agreement talks continue, we’ve learned that the Trans-Pacific Partnership is not dead after all. In fact, the trade deal among Pacific Rim countries has a new name: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Along with Canada, it includes Japan, Mexico, Malaysia and seven other countries. The pact was made without the participation of the United States, which represented 60 per cent of the original group’s combined GDP. This was a massive loss for sure, but nonetheless, the CPTPP remains an important global deal.

The original deal was all about the United States and Japan trying to counter China’s economic emergence. Donald Trump pulled his country out of the deal when he became U.S. President, but the world is marching on, so it seems, without the United States. CPTPP is indeed NAFTA – minus the United States, of course – but with a new link to a rapidly growing market.

For Canada, this is a significant gain on the world stage. If the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) was an opportunity for Canada to become a trading platform between two continents, CPTPP is a clear statement that Canada wants to become a relevant player worldwide.

This can only make our agrifood sector much stronger. Our grain and livestock industries will now have the chance to make a dent in many Asian markets. But for our supply-managed sectors, which believe that serving Canada’s population of 36 million is enough, signing CPTPP represents a new challenge. The new deal will allow more dairy, eggs and poultry products into our market. Details have not yet been released, but it appears CPTPP will loosen tariffs on some products that are not currently allowed in our market. In other words, supply management’s supremacy is slowly disintegrating. If CETA created a breach in our highly protectionist scheme, CPTPP will blow it wide open.

Maintaining supply management has been, to a large extent, a disservice to the sector. Those still in the system are content and are desperately trying to convince the Canadian public that supply management serves them well. But it only serves those still in the system.

Several farms have disappeared over the past few decades, even though supply management was established to protect the family farm. The number of dairy farms in Canada has gone from more than 40,000 to about 11,000. With poultry and egg production, we have seen even more consolidation. This is a worldwide trend, but it begs the question: Why we are maintaining the status quo?

Through the years, politicians have all declared their support for supply management – with one notable exception: Maxime Bernier, who ended up losing the Conservative Party leadership race as a result. But governments are signing pacts that are slowly destroying supply management from the outside – while publicly supporting the regime.

Meanwhile, some major stakeholders are not waiting for governments to become more forthcoming and are hedging their bets against supply management. Canadian companies such as Saputo have already taken a position in the Asia-Pacific market by investing in Australia.

Canadian supporters of international trade should recognize, no matter what the politics are, that the Trudeau government did the right thing in agreeing to CPTPP. It validated the work of the Harper government by capturing the essence of the TPP deal. Signing this deal will mean that, by 2025, Canada’s farmers and food processors, with their ambitious targets, could increase Canada’s agrifood exports to at least $75-billion annually. CPTPP members probably hope the United States will eventually come to its senses and embrace multilateral agreements again. Until then, corridors crossing the Pacific to accommodate more trade will only get stronger. As we ratify this deal, we need to remember that supply management requires a different approach – one based in reality. Instead of fuelling what is already a highly polarized debate on the issue, we have to think about what Supply Management 2.0 will look like. And considering what is to come, sectors are running out of time.

“Recent layoffs in all grocers in Canada are not as much about job losses as they are about redefining business models.”

Dr. Sylvain Charlebois

Dr. Sylvain CharleboisDean, Faculty of Management

Downsizing is never easy, no matter what. And just weeks away from the Holidays, reducing staff is not good for morale. Yet changes in the grocery industry is causing grocers to rethink store structures, which includes laying off staff. Metro has let 250 people go in recent weeks. Loblaw also announced 500 layoffs earlier in the month. It was Sobeys’ turn recently when it announced it was reducing the number of employees by 800, which is about 2% of Empire’s workforce, Sobeys’ parent company. Some may believe layoffs at Sobeys are really about the failed Safeway deal, but there is more to the story.

Empire acquired Safeway in 2013 for almost $6b. It allegedly won a bidding war against Metro, as both companies wanted a better handle on the lucrative western market. The economy out West was flourishing which made a strong case for an acquisition. However, as the economy shifted, due mainly to oil prices, the merging of assets and the restructuring of the organization was poorly executed. Project Sunrise was launched earlier this year to help Sobeys simplify organizational structures and reduce costs. Given the recent financial results, Project Sunrise appears to be working.

Sobeys is clearly on a rebound. Operating costs are lower, the Safeway situation seems more contained and financial results are getting better. However, some store sales are barely moving, and foot traffic could be better. Unlike other grocers, Sobeys has a complicated structure, borderline confusing. Recent layoff announcements extend throughout the company, and not just at Empire’s head office. Sobeys’ model is highly decentralized. For local-market adaptation tactics and customization, such an approach helps. But in an environment in which food prices are under extreme market pressures, structural efficiencies are key.

Sobeys still has a long way to go. Empire shares are up 34% over the last 12 months, but its value is still lower than what it was 3 years ago, about 10% lower. Sobeys needs to do better in the months to come, but time is not necessarily a luxury the company has. The layoffs we have seen across the industry, more than 1500 jobs, are not just about minor strategic readjustments. A fundamental shift is happening in the industry, and no company is immune to these fluctuating market forces. Some may blame higher minimum wages in some provinces, yet this is a minor issue. Companies are dealing with Walmart’s and Costco’s increase in food space, and of course, the Amazon Effect. Amazon is not just forcing grocers to raise their competitive game, it also compels them to think differently about the consumer.

Many consumers still want to touch an apple, or squeeze a lemon before purchasing their groceries. There is also a growing number of consumers wondering if visiting a grocery store is the best use of their time. Young professionals, mainly Millennials, who have grown up with the internet, can see themselves buying groceries regularly online. The hassle of walking around a store and waiting in line to give their money to a clerk is not an appealing proposition.

Grocers have come to realize that they are ill-equipped to attract an ever-increasingly complicated marketplace. Often labelled as a very traditionalist sector, many employees in the sector have been trained to make decisions based on pure intuition. Meanwhile, disrupting companies like Amazon would consider intuitively-driven decisions to be taken at great peril.

Ever so slowly, more companies are hiring talent that embrace the power of data using artificial intelligence and predictive analytics. Companies typically have access to an abundance of data and market information, but had little or no capacity to process it. Recent layoffs in food distribution are not as much about job losses as they are about redefining business models. Anticipating what consumers will do in a world where several options are available to them will be critical. The use of proper automation also requires a different skill set, something grocers dearly need. Data smartness is in, intuition less so.

Regrettably, we should expect more layoffs, but many of these positions will be repurposed, however, these will not be reported about in the media. The food industry is preparing itself for a tsunami sparked by the evolution of data sciences in the sector. Since September 2016, food prices in Canada indicate that unprecedented macroeconomic headwinds are affecting the entire market. Long-lasting low interest rates have almost made food inflation an enigma. Offsetting the threatening blows of companies which do not need to sell food to make a profit is real, and the Whole Foods acquisition by Amazon this summer has only enticed grocers to move more quickly.

Grocers are not in panic mode, but they know what is out there is too big to ignore.

“Taxing a food product which has been entrenched in our culture for so long is idealistically silly. We should let the market evolve and allow consumers to make their own choices. That said, the livestock industry ought to look at market data and start listening to consumers in order to better appreciate their concerns. Given that they are one of the most trusted groups in our economy, livestock producers are ideally positioned to renew their social contract with the public.”

Dr. Sylvain Charlebois

Dr. Sylvain Charlebois Dean, Faculty of Management

The idea of having to pay a sin tax for environmentally detrimental foods seems to be gaining more support. For some, eating meat is considered a sin, and therefore meat products should be taxed, like alcohol and tobacco. A new report published recently by a group called Farm Animal Investment Risk & Return Initiative (FAIRR) argues that a tax on meat is inevitable.

The meat industry, particularly cattle, has been facing relentless criticism over the last decade. Very rarely have we seen reports encouraging consumers to eat more meat. For one thing, science-based findings connecting climate change and meat have been accumulating. The well-known United Nations Food and Agriculture Organization (FAO) has reported that livestock account for about 14.5% of the world’s greenhouse gas emissions. Other surveys have even suggested up to 18%. Greenhouse gas emissions produced by the cattle industry will only increase, as the middle class in both India and China are expanding, and as such, demand for animal protein is exploding.

And then there’s health. Two years ago, the World Health Organization linked meat consumption to cancer. The report demonstrated that eating processed meat products increases the risk of developing cancer. Several meat-producing countries including Canada, the U.S. and Brazil ridiculed the report, as processed meats were added to the same category as asbestos. But several other governments, including China and some European countries, have actively discouraged their populations from consuming an unreasonable amount of meat. Not a signal the meat industry needs.

The other major headwind the industry faces is related to the ethical treatment of animals. A number of people believe livestock production to be unethical and that the industrial production of meat should be outlawed, period. The ethics narrative around meat has been gaining traction over the last decade or so.

Now, if you think the FAIRR initiative is some minor, under-resourced group desperately trying to seek attention, think again. It includes a portfolio of 57 investors with more than $2.3 trillion under management. This alliance clearly wants to influence the plant-based protein agenda, and have had their fair share of success in doing so. Already, agri-food giants like Tyson Foods and Cargill are looking at “beyond-meat” solutions. Demand-focused companies are seeing the writing on the wall. Many consumers are re-evaluating their relationship with animal proteins. But in cattle country, a large number remain in deep denial, blaming interest groups for fear-mongering.

Statistics show that demand for meat in Canada is still stubbornly robust. The average Canadian would typically consume about 87 kilos of meat products in one year, which is just slightly lower than the amount from 5 years ago. This year, beef consumption in our country reached 25.4 kilograms per capita, and some expect demand for the product to increase to 25.5 kilograms next year. Surprising, perhaps, but beef prices have come down, making the product more attractive for the consumer on a budget. Some significant variations amongst provinces should be noted, though. Alberta is by far the largest consumer of beef as the average adult Albertan male will eat 83 grams a day. That’s 53% more than the average in Newfoundland, and 18% more than in neighbouring British Columbia. Affordability and lifestyle are probable reasons for such a difference.

Canadian consumers have stayed on the side of our livestock industry, but numbers are showing signs of a change in consumer habits. Demand for pork is expected to fall to unprecedented levels in 2018, dropping 13% from its 2015 level. Demand for chicken, one of the cheapest types of animal protein out there, plateaued in 2016 and has since softened. Although beef could experience a rebound in 2018, expected increases aren’t spectacular, given how low retail prices are these days. Canadians are not giving up on meats, but they are willing to spend more time away from the meat counter. Animal protein still has market currency, but plant-based alternatives to meat are increasingly impressive.

But little can be accomplished by taxing meat. Taxing food in general, any food product, is morally questionable. A retail tax on food is regressive and can potentially penalize the underprivileged. Some have argued that meat is the new tobacco. This sensationalism-intended parallel is unwise, since tobacco is not essential to life and food is. The implementation of such a tax would also be challenging. If federal or provincial governments were to tax meat, funds would likely be used to support other relevant public programs. But as with any tax, transparency on how funds are dispersed within the massive, bureaucratic governmental machinery is weak. Also, many great small businesses around the country have offered high quality meat products to local markets. Many of them are family businesses. Taxing sausages and steaks would compromise the viability of many stores valued by communities around the country.

Meat has played a significant part in consumers’ lives in the Western world for centuries. Penalizing consumers for continuing a culinary tradition is inexplicable. Taxing a food product which has been entrenched in our culture for so long is idealistically silly. We should let the market evolve and allow consumers to make their own choices. That said, the livestock industry ought to look at market data and start listening to consumers in order to better appreciate their concerns. Given that they are one of the most trusted groups in our economy, livestock producers are ideally positioned to renew their social contract with the public.

“As shocking as it was, most will eventually forget Loblaws’ admission of price-fixing. Let’s hope the industry doesn’t.”

Dr. Sylvain Charlebois

Dr. Sylvain Charlebois Dean, Faculty of Management

It was indeed the most surprising food story of the year. Most Canadians were stunned and dismayed to learn that our country’s number one grocer and carrier of our nation’s most trusted brand, President’s Choice, was caught up in a price-fixing scheme with bread maker Weston, owned by the same company. The scheme lasted 14 years, from 2001 to 2015. As a result, Loblaws fired several people involved and then turned itself into Santa Claus by giving a $25 gift certificate to millions of Canadians who may have been affected. The Competition Bureau, in return, offered not to lay criminal charges — a precious gift for a company for whom image and brand is everything.

Any supply chain-related issue is complicated to understand. But in layman’s terms, what was happening between Loblaws and Weston was inexcusable. For more than a decade, Weston’s pricing scheme for its bakery products gave an unfair advantage to Loblaws, while disadvantaging other food retailers. The strategy was not so much about getting more money out of consumers, at least not recently, but more about managing margins. Bread is often used as a loss leader, an item sold at a lost to increase traffic in a store. In fact, according to Statistics Canada, a standard loaf of bread is cheaper today than it was back in 2013.

But if we go back in time, bread prices have indeed fluctuated. A decade ago, the price of some bakery items doubled over just a few months. In 2007 and 2008, when commodity prices exploded due to the ethanol effect, the price for a bushel of wheat reached unprecedented levels. Higher input costs were used as a backdrop for the narrative, to justify enormous price hikes. But American consumers also experienced a similar phenomenon, so higher bread prices at the time was not just unique to Canada. Many countries were affected.

Loblaws did the right thing by coming forward, but several questions have cropped up as details emerged. Firstly, the length of time: for 14 long years, two of the largest players in the business altered market conditions, just because they could. Many wonder why it took so long for the company to realize it had a problem. In the grocery industry, a week is already an eternity, let alone 14 years. Most food businesses are literally always a recall away from closing. Quality assurance and ethics are central to most businesses, including Loblaws. Knowing this, it is challenging for Canadians to believe the company had only just become aware of the issue. The case for plausible deniability at Loblaws is weak at best.

Secondly, the people involved: it is likely that over several years, more than just a few employees were a part of this. Numerous employees have come and gone, moving on to other positions, probably in the food industry. There is therefore a possibility that the culture of collusion and price-fixing may have spread beyond the company’s walls, that the movement of human capital, over time, may have created an industry-wide problem. A scary thought.

When considering these factors, we can conclude that Loblaws’ coming out is just the beginning. The Competition Bureau is also investigating Sobeys, Metro, Wal-Mart, Giant Tiger, and even bread producer Canada Bread Co. If price-fixing in bread was real, it is quite conceivable that similar schemes could exist and affect prices in other parts of the grocery store. Therefore, this matters to all Canadians. The $25 gift card is just window dressing, embedded in some public relations framework to save face. What is at stake is consumer trust and how the industry can maintain its social license to operate. Without this, everything becomes more challenging: growing revenues, supporting communities, innovating, partnerships, loyalty programs — everything.

Independent grocers have the most to win out of this mess. They just cannot do what Loblaws and Weston admitted to doing for 14 years. They don’t have the market power. But it is doubtful Canadians have the stamina or the discernment to punish the company by withholding their shopping dollars. Habits are heard to break, especially with food.

As surprising as Loblaws’ admission may be, the market is cruelly fickle. Despite breaking the law, most will have forgotten about Loblaws’ mea culpa within weeks — perhaps even days, given the time of year. These cases are inherently complicated. Case in point: most have forgotten that Hershey admitted doing the same thing, just a few years ago.

For Loblaws, this incident won’t be as damaging as the Joe Fresh facility disaster in Bangladesh in 2013, which killed more than 1000 people. Not even close. But now, Canadians have the right to doubt and second guess anything. The fact that bread, a main food staple, was targeted by the Bureau’s investigation, could give us hope for change. Everyone can understand the association of terms like “bread” and “price-fixing”, however complicated the situation may be. Most Canadians will understand that it is wrong, plain and simple. Let’s hope the industry learns from this, too.